means rather than purchasing goods.

It refers to desire for new

experiences rather than ownership, and associates the outright purchase of a
good with a lack of freedom. Consumers who follow this ideology are more
likely to rent or lease a product, allowing them to follow new product trends
more closely.
Lease is a contract between the owner and the user of assets for a certain
time period during which the second party uses an asset in exchange of
making periodic rental payments to the first party without purchasing it.

Image: Leasing
Source: http://goo.gl/P84qGt

Leasing In Bangladesh
like in many of its peer countries, owes its origin to the efforts of the
International Finance Corporation (IFC), Washington. At the instance of IFC,
the first Leasing Company in Bangladesh, Industrial Development Leasing
Company of Bangladesh Ltd. (IDLC) was set up in 1984 and commenced its
operations in 1986, with a 20% shareholding from Korea Development
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Prospects of Leasing for Entrepreneurs

Leasing Corporation. The countrys central bank, Bangladesh Bank, put in

place a regulatory mechanism under the Financial Institutions Act 1993 and
the Financial Institutions Regulations 1994.
Lease financing, as organized in Bangladesh, operates with the following
objectives: to assist the development and promotion of productive
enterprises by providing equipment lease financing and related services; to
assist in balancing, modernization, replacement and expansion of existing
enterprises; to extend financial support to small and medium scale
enterprises; to provide finance for various agriculture equipment; and to
activate the capital market by operating as managers to the issue,
underwriters, or portfolio managers.
The operations of NBFIs in Bangladesh are regulated by the Bangladesh
Bank. The grant of authority to engage in borrowing from the general public
is normally based on such factors as minimum capital requirement, quality of
management, compliance with the concerned laws, rules, and regulations,
and stability of financial standing. NBFIs may grant loans to their members
and the general public up to a certain amount and may also engage in trust
functions with prior permission of the central bank. They are not allowed to
engage in foreign exchange transactions.

Lease Financing
Lease is a contract between the owner and the user of assets for a certain
time period during which the second party uses an asset in exchange of
making periodical payments to the first party without purchasing it. Under
lease financing, the lessee regularly pays the fixed lease rent over a period
of time at beginning or at the end of a month, 3 months, 6 months or a year.

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Prospects of Leasing for Entrepreneurs

Image Source: http://goo.gl/Fy2NXM

In a direct financing lease, the lessor leases the asset by manufacturing or by
purchasing from the manufacturer to the lessee directly and the lessee
makes regular rental payments to the lessor. The lessor holds the owntership
of the asset until the end of the lease period and the lessee holds the
possession of the asset. In addition the this major type, there are other types
of lease such as sale and lease leveraged lease. Legally, a leasing company
is defined as one having the business of hiring plant so equipment or of
financing their hire by others. The international Finance Corporation
promotes leasing as a method of financing.
The Operating Lease:
A contract that allows for the use of an asset, but does not convey rights of
ownership of the asset. An operating lease is not capitalized; it is accounted
for as a rental expense in what is known as "off balance sheet financing."

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Prospects of Leasing for Entrepreneurs

Figure: Operating Lease

Source: http://goo.gl/7i7ISQ
For the lessor, the asset being leased is accounted for as an asset and is
depreciated as such. Operating leases have tax incentives and do not result
in assets or liabilities being recorded on the lessee's balance sheet, which
can improve the lessee's financial ratios.
Financial/ Capital Lease:
Financial and capital leases are particular types of leasing transactions
offered to both individuals and corporations by lending institutions such as
banks, credit unions and financial firms to purchase machinery and
equipment.

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Prospects of Leasing for Entrepreneurs

Figure: Financial lease

Source: http://goo.gl/Saqfe1
Capital and financial leases offer different payback options and interest
flexibility. Because of their rigidity and tax and insurance requirements,
financial leases are a better option for large, prosperous companies, while
capital leases offer flexibility that factors in both the life of the equipment
and the payback term.

Importance of Lease Finance

Lease finance or lease financing means contract between owner of asset and
user of asset. In this contract only rent is paid at periodical intervals for using
of asset by user. If user of asset has no money to pay initial amount of
leasing contract, he can also do contract with third part to pay initial amount
or specific period rent of lease. It will be also lease finance. In following
words, we can explain its importance
Lease finance is easy to get than getting loan for buying all fixed
assets.
Monthly rent payment for lease finance will be operating expenses. It
will be allowed to deduct total income. So, company can get tax
benefits in lease financing.
It can show as invisible debt of company out of its balance sheet. You
can show lease finance in the footnote of balance sheet, if you did
contract directly with the owner of asset.
One of major important point is that it is more flexible way of finance.
You can fix your need of asset and get it one lease through lease
financing.
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Prospects of Leasing for Entrepreneurs

A study from IFC has revealed that 30% of total share of lease
financing as investment of fixed asset is of emerging and developed
economies and now 15% of developing countries.

Prospects of leasing for the ENTREPRENEURS

Entrepreneur is a person who sets up a business or businesses, taking on
financial risks in the hope of profit. See the future in light of the present.
Please kept in mind see the future in light of the present. The situation for
the new entrepreneurs is not good enough to describe in cover page of the
news! But some hope lies in there.
For example, think about the summer season. Flying to Rajshahi, kept in
mind why we are trying and the purpose, for taking the fragrance of the
mango. A fully ripe mango. No way its a huge heaven of ripe mango. How
they (businessmen of mango) are undertaking the selling business of the
mango. There are many people who are undertaking business as taking the
garden lease. That means they are the lessee. They are taking those garden
for the whole season when the mucus are before on the tree or after in the
tree. The lessor has been making that agreement over a specific period of
time and giving the right to the lessee for making business for that period
not for free bird but in costly bird to pay over of that period.
That was the small example of the lease for short term period. But what will
happen in large business prospects and what should be? Actually who are
the young investor and to invest, they want some helping hand to give
their best effort to up themselves in the light of the present situation to see
the picture. But the situation is like that all the leasing company does not
want to take any risk to give leasing facility for the individual. Think about
IDLC, they give lease of the asset are 95% corporation and only 5% are
individual. But on the vice versa think United Leasing Company Ltd they are
on the platform to taking risk for trying to upholding those class of individual
who are seeking for helping hand. They are trying to give lease of
asset or equipment for making business of individuals own wish to
perform.
This company also thinking about women entrepreneurs for
investing just like a free bird to fly in the sky not among the four wall.

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Prospects of Leasing for Entrepreneurs

Image: Leasing Entrepreneurs

Source: http://goo.gl/JDf947
Bangladesh is an agricultural country gradually shifting towards
industrialization. Traditionally, people of this subcontinent were reluctant to
business and trade. But as the demand of time, they are inspired and
inclined to take risk and establish business enterprises. The entrepreneurs
are faced with scarcity of initial capital and if somehow they have started
business they face serious shortage of working capital. In such case, they run
for long term direct financing from commercial banks, specialized banks and
other financial institutions, but receiving long term loans from direct
financing institutions in Bangladesh is not an easy task. Leasing business in
Bangladesh is providing for the alternative financing introduced by the three
prominent leasing companies in Bangladesh; IDLC, ULC and PLC. Recently,
some other leasing companies namely, Peoples Leasing Company, Bay
Eastern Leasing Company, Industrial Leasing and Financial Services LTD, GSP
Finance and a local private commercial bank have emerged in the market.
Women
entrepreneurs
In
Bangladesh
women
possess
a
huge
percentage of the total population whose improvement from the economic
activity will hindrance to the economic development of the country. To
encourage more and more women entrepreneurship many leasing company
offers flexible and easier financing to the women entrepreneurs. The
interest rate for women entrepreneur is only 10% p.a. subject to refinance
from Bangladesh Bank. Leasing companies face some problems in
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Prospects of Leasing for Entrepreneurs

showing their business in the country. The relatively slow growth of the
demand side compared to the fast growth of the lease business is one such
problem. This leads many leasing companies to operate in partial capacity.
The culture of loan default that prevails in the country is also a deterrent.
Leasing companies often find it difficult to raise funds through short- or longterm borrowing from money and capital markets. They are hard pressed to
deal with the financial assets because of the present laws of the country,
which are also not fully enforceable.

Strength and Weakness of Leasing

Strength:
a) Shifting the risk of technological obsolescence: In the case of
ownership, the firm bears the risk of the asset becoming obsolete. This
dimension of potential risk is too important to be ignored and particularly in
the present equipment more expensive to operate and totally inadequate to
meet the company's competitive needs and thus inflict heavy losses to the
firm. Leasing provides a cushion against all such hazards by shifting the risk
of obsolescence of equipment to the lessor.
b) Easy source of finance: A lessee avoids many of the restrictive
covenants that are normally included in Long -term loan agreements while
borrowing from financial institutions or commercial banks. Besides, the
leasing does not warrant any mortgage or hypothecation of the asset since it
belongs to the lessor. Above all, in the case of leasing, the asset is made
available to the lessee for immediate use without loss of time in applying for
loan, waiting for its approval, buying asset subsequently, etc. and lease
rental payments may also be matched with the cash flows availability of the
lessee.
c) Enhances liquidity: The use of sale and lease back arrangement may
permit the lessee firm to salvage its weak liquidity position by converting its
existing fixed asset into cash, the funds so released can be used to augment
its working capital funds. A firm having shortage of working capital or
foreseeing liquidity crisis may exercise the option of selling the owned asset
to a lessor and take it back on lease basis.
d) Conserves borrowing capacity through OFF-THE BALANCE -SHEET
financing: Leasing is considered a 'hidden' form of debt in that the
company can acquire the use of an asset without having the lease
obligations appear as liability on its balance sheet. If the assets were
8
Prospects of Leasing for Entrepreneurs

purchased and financed by borrowing, both the asset and borrowed funds
would be shown in the firms balance sheet. Traditionally leasing provides offthe-balance sheet financing keeping the firms debt raising ability intact. The
traditional accounting entries accompanying leasing make a company
appear to be in a better borrowing position than a company that purchases
equipment outright. (Samuels and Wilkis, op. cit. p. 311)The inclusion of
debt in the balance sheet raises the debt equity ratio of the firm, which in
turn restricts its future debt -raising capacity. In other words, the practice of
omitting the lease obligations from being recorded in the balance sheet has a
favorable effect on the financial position of the lessee firm.
e) Tax benefit: Lease payments, i.e. lease rentals made by the lessee are
entirely deductible for tax purposes because lease rentals are treated as
revenue expenditure and thus provide a greater tax benefit for the lessee in
comparison to borrowing from banks. In order to avoid the hostile of
explanation of source of fund to the income tax authorities for acquisition of
capital assets, it is preferable to go for lease rentals. Particularly, in case of
acquisition of cars as per existing income tax law, the cost of any such car
valuing beyond Tk. 7.5 Lakh is not allowed as deductible expense. But under
lease finance such expenditure is fully allowed.
f) Hedge against inflation: Payments of lease rentals are usually
spreading over a number of years, so the real cost of acquisition can be
reduced which acts as a hedge against inflation. In addition to the above
benefits, leasing companies have special commitment of providing financial
assistance through leasing to (1) all-level entrepreneurs for a wider range of
asset acquisition from motor vehicles to large industrial machinery plant ;(2)
medium, small and micro-level entrepreneurs who have no easy access to
commercial credit/loans for establishing small and cottage industries such as
medium and small scale Textile looms, Printing and Packaging machinery,
Handloom, Hatchery, Poultry, Fishery equipment, power pumps, Power tiller
etc .;(3) Engineers, Doctors, Technologists etc. who have technical
knowledge but have lack of financial assistance for establishing small/micro
enterprises/industries ; (4) skilled and semi-skilled persons who have no
employment opportunities or access to bank loans or other sources of fund
for establishing light engineering workshop/small enterprises by providing
lathe machines, welding machines and other required tools, Computers,
Photo copiers, Type writers, Auto rickshaw, Van, Tampoo, Pick-up etc.

Weakness:
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Prospects of Leasing for Entrepreneurs

a) Risk of being deprived of the use equipment: The lessee has only
the right to use the asset but the ownership lies with the lessor. If the lessor's
financial condition deteriorates or if the leasing company is wound up, the
lessee may be deprived of the use of equipment interrupting its normal
manufacturing operations.
b) Alteration in the asset: Under the lease, the lessee is generally
prohibited from making alterations or improvements on the leased asset
without the prior approval of the lessor. It may cause problem to the lessee if
the lessor disapproves his plan of alternation. Moreover, the lessor may
impose certain restrictive conditions, sometimes, regarding the use of the
asset, say, number of hours the equipment may be put to use and so on.

Image Source: http://goo.gl/C5HnKx

c) Terminal value of the asset: In the case of assets, such as land and
buildings, which have high terminal value at the end of the lease term, it
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Prospects of Leasing for Entrepreneurs

would be more appropriate to own the asset than to lease it as the salvage
value belongs to the lessor.
d) Problem of evaluating credibility of lease-customers: There is no
credit information bureau or credit rating agency in our country. Respondents
reported that Bank Statements, Audited Balance Sheet or Tax Return might
be valuable source of information to judge financial solvency of the party.
Auditors are not ethically sound. Accounts are manipulated by way of
window-dressing and they cannot be accepted to show the real picture of the
business (Khanam, 1995).

In the conclusion I would like to say that Bangladesh has potential numbers
of leasing entrepreneurs. All is need that to have some government help to
extend this business. And young entrepreneurs should come with newer
ideas of leasing. It would be a future of many young entrepreneurs and be
able to reduce the unemployment problem to some extent. They (the
entrepreneurs) should have given proper attention and banks should provide
SME facilities for them.

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Prospects of Leasing for Entrepreneurs